The COVID-19 pandemic has wrecked havoc on several major industries this year. However, the healthcare sector has been one of the few bright spots in this rather ugly market. A wide swath of the healthcare space, in fact, is in positive territory for the year right now.
Generally speaking, investors have flocked to these companies because of their somewhat unique ability to continue to operate during this ongoing pandemic. Not many businesses outside of healthcare and technology can make that claim.
Which healthcare stocks have the best chance of pushing even higher over the course of May? AbbVie (ABBV -0.18%), Adverum Biotechnologies (ADVM -4.43%), and Heron Therapeutics (HRTX -2.67%) are three names healthcare investors will definitely want to keep their eyes on this month. Here's why.
AbbVie: A de-risked growth and income play
AbbVie is a large-cap biopharma company. The company's shares are worth checking out this month for two core reasons. First and foremost, AbbVie is slated to close on its $63 billion acquisition of Allergan before the end of May. This mega-merger will greatly diversify AbbVie's product portfolio, lowering the risk associated with the eventual decline of the company's anti-inflammatory medicine, Humira.
Secondly, AbbVie's brand-new immunology medicines Skyrizi and Rinvoq, and its blood cancer franchise consisting of Imbruvica and Venclexta, are all exceeding expectations at the moment. These four key products, in fact, helped AbbVie to handily beat Wall Street's first-quarter revenue estimate earlier this month.
AbbVie's shares have yet to truly benefit from these positive tailwinds, though. As proof, the company's stock is presently trading at less than nine times forward-looking earnings. That's a dirt-cheap valuation for a blue-chip biopharma stock, especially for one that pays a sky-high annualized yield of 5.53% at current levels. So, if you're on the hunt for a grossly undervalued growth and income vehicle, AbbVie should definitely be at the top of your list this month.
Adverum: A disruptive gene therapy stock
Adverum is a clinical-stage gene therapy company. The biotech's shares have gained 71% so far this year due to an encouraging clinical update for its wet age-related macular degeneration (wet AMD) candidate ADVM-022. ADVM-022 is designed to be a one-and-done gene therapy for wet AMD. Currently, patients with this serious eye disorder have to receive frequent anti-VEGF injections simply to slow the progression the disease. Adverum's therapy could thus prove to be a game-changer for this condition.
What's the opportunity? The anti-VEGF injection market for wet AMD is a multibillion-dollar space. Adverum's experimental therapy thus has the real potential to morph into a megablockbuster product by the end of the decade. The drawback with this small-cap biotech stock is that ADVM-022 is still in the early stages of development, meaning it could take several more years before Adverum books any sales for this high-value product candidate.
That being said, Adverum might have a big target on its back on the heels of this data release. Gene therapies are highly sought-after products, and ADVM-022 is targeting an enormous market in wet AMD. Adverum, in turn, may already be fielding buyout or partnering offers. Regardless, this small-cap biotech stock comes across as woefully undervalued based on ADVM-022's commercial opportunity.
Heron: This biotech stock could double in value soon
Heron is an early commercial stage biopharma. The company currently markets two drugs indicated for chemotherapy-induced nausea and vomiting. But the real star of the show is the experimental postoperative pain medication HTX-011. Wall Street's peak sales for this pain drug presently range from a low of $545 million to a high of $1 billion. To put these revenue projections into context, Heron's market cap presently stands at a mere $1.33 billion.
What's the lowdown? The FDA's target review date for HTX-011 is set for June 26, 2020. The agency could still delay a final decision due to the COVID-19 pandemic, but Heron seems to think the FDA will ultimately stick by this goal date.
The big picture is that HTX-011 -- if approved in a timely manner -- should super-charge Heron's top line over the next 10 years. This small-cap biotech stock, in turn, could be on the cusp of a major growth spurt in the second half of 2020.
What's the risk? Regulatory decisions are impossible to handicap. So, while Heron's stock does sport a juicy upside potential, investors probably shouldn't go hog-wild with this name ahead of this risky binary event. A smallish position, though, may be worth the risk.